Prudence is going to be punished, and recklessness rewarded

Even after 18 months of fretting, the speed with which Britain's economy is now hurtling into reverse comes as a shock. The announcement on Friday of a fall of half a per cent in our national income might not sound very much, but it is. Even worse, the latest financial crisis had only just begun when this quarterly data was being collected. We stamped so hard on the brakes during those scary days of late September that the economy came to a screeching halt. At this rate, by Christmas we are likely to be in the grip of the deepest recession in a generation.

If you want to see what this means in practice, just look at the extraordinary statistics now being disclosed by some very ordinary companies. Take Volvo, for example. A year ago, the world's second-biggest truck maker took orders for 42,000 new lorries in Europe. On Friday, it announced there had been so many last-minute cancellations that the equivalent figure for this year's third-quarter sales period was just 115 - a fall of more than 99 per cent. Almost overnight, the idea of any sane businessman spending money on a shiny new rig in which to haul their products around has become unthinkable.

That's the thing about recessions. There are so many things people don't have a choice about paying for - fuel, taxes, Yorkie bars etc - that even a small slowdown hits disproportionately hard everywhere else. In industry, it goes with the territory: companies exposed to big swings in investment are known as cyclicals and should at least have their seat belts on. The rest of us need to start strapping in.

This motorway pile-up might have been caused by a few plonkers in the fast lane, but the consequences are going to hit us all - no matter how safely we were driving. In fact, it's worse than that. The infuriating thing about what's happening is that those who behaved most cautiously are in some ways likely to suffer more.

Take savers, for example. Say you were clever enough to see all this coming, taking the old-fashioned view that putting money aside for a rainy day was both prudent and responsible. Probably you eschewed the temptation to top up your mortgage like the people next door did and go on expensive long-haul holidays or Sarah Palin-style spending sprees on your wardrobe. Hopefully you even managed to resist the siren call of Icesave or the charms of your pushy stockbroker - opting instead for a nice safe savings account or pension plan.

You might think now was the moment for a little quiet satisfaction: a time to congratulate yourself on not living beyond your means. Instead, there is the perfect economic storm. Interest rates are plummeting - good news for your friend with a huge mortgage but a disaster for anyone who relies on savings income, as many pensioners do. The value of the pound in your pocket is also plummeting - a particularly galling prospect for someone who decided to save up for next year's foreign holiday rather than put it on the never-never last year. And, of course, the Government has decided to spend billions of pounds of your money bailing out the banks and, by extension, their more reckless customers. The biggest political imperative of the day seems to be making sure that homeowners who overstretched themselves don't pay the price through mass repossessions.

You won't even get much sympathy. Anyone with cash put aside today risks being regarded with the sort of envy reserved for smug family members who save their pudding until several hours after dinnertime. There's no point reminding them of your earlier sacrifice when others are hungry.

Of course, no one likes naked schadenfreude either. Those purists, like one reader who wrote to me last week actively wishing there would be more home repossessions, are missing an important point about the interconnectedness of society: mass unemployment and homelessness are good for no one. The human cost alone - in blighted lives and wasted talent - argues against encouraging some sort of salutary recession just to teach borrowers a lesson. Never mind the cost of the benefits bill, rising crime levels and a contracting economy.

There is going to be more than enough hardship and injustice to go around, whatever we do. Many borrowers had little choice but to take out unsustainable mortgages if they wanted to afford a family home. Those on low incomes are always hardest hit by any recession, whether or not they borrowed a lot of money. Many countries that deserve a break in life - Hungary, say, or Ukraine - are also being battered by forces well beyond their control. Even some bankers deserve sympathy: the once prudent Lloyds TSB, for example, has found itself saddled with a painful agreement to rescue its rival, HBOS, while the racier chaps at Barclays managed to escape scot free.

Somehow, though, we have to find a way of retaining a sense of fairness. In markets, as in life, there has to be faith that the rules of natural justice are enforced in good times and bad. In this case, we need to remember the interests of savers if we are to stand any chance of restoring a long-term savings culture to Britain. Not every home repossession is a bad thing.